The rules have changed, making it easier for banks to sell insurance. A series of amendments went into place on April 21, putting a final end to an argument by local bankers who said a handful of regulations put state-chartered banks at a disadvantage when trying to sell insurance. The changes resulted from a court ruling last year that decreed four provisions of Massachusetts law were preempted by the federal Gramm-Leach-Bliley Act.

The Massachusetts Bankers Association had argued that state law interfered with the ability of financial institutions to sell insurance products, pointing to the four provisions.

Under the old state law, banks were not allowed to pay referral fees, were prohibited from freely referring customers to their own insurance department, had to keep that department physically separated from other parts of their operations and had to wait until after a loan application was processed before they could offer insurance to customers.

The ban that was lifted last month is the final stage of MBA’s victory on behalf of locally chartered banks.

According to MBA, there are about 75 or 80 banks offering insurance products in the Bay State. It is an option that has only been available to banks since the late 1990s. But as more banks look for ways to generate revenue and offer customers an increasing amount of products and services, the option of selling insurance continues to be picked up by more banks.

“I think insurance sales is an evolving business line for banks,” said Kevin F. Kiley, MBA’s executive vice president and chief executive officer. “It’s an ongoing area that banks are looking at. It’s become a natural extension of the business, and it continues to grow.”

State-chartered banks in Massachusetts were not allowed to sell insurance under an anti-affiliation rule until August 1998. A change to the law authorized banks to obtain licenses to sell from the Division of Banks and the Division of Insurance. However, an act to protect consumers put certain provisions in place that restricted how freely banks could promote the insurance component of their business.

In 1999, Gramm-Leach-Bliley introduced sweeping preemption rules, including one that prohibited a state from interfering with a bank’s right to sell insurance.

Kiley said the changes to the regulations allow state-chartered banks the same benefits as the federally chartered banks that participate in the sales of insurance. He said it was a matter of keeping things consistent and ensuring an even base for competition in the marketplace. He said the regulations for state-chartered institutions that chose the sell insurance are now more consistent with the laws governing their federally chartered counterparts.

“We are extremely pleased with the revised provisions. Clearly it’s a very positive step forward,” said Kiley. “I think it’s extremely helpful.”

“The regulations are a nice work product that the Division of Banks and the Division of Insurance came up with to implement the court ruling,” noted Kenneth F. Ehrlich, a partner with Nutter McClennen & Fish and co-chairman of the firm’s banking practice. Ehrlich is also on the board of directors for the Massachusetts Bank Insurance Association, a division of MBA. He said the amendments are an improvement and should prove beneficial to the banks practicing the sale of insurance.

“They strike an appropriate balance between the interest of the regulators and protecting consumers on one hand, and the needs of banks on the other hand in conducting effective sales programs,” Ehrlich said.

‘One-Stop Shopping’
Kiley said some banks may strike up more aggressive marketing of their insurance business now that the rules have changed.

“It will become more apparent that people can do one-stop shopping,” said Kiley.

Joe Bartolotta, spokesman for Boston-based Eastern Bank, said when his state-chartered bank entered the insurance arena it was thinking ahead to possible regulatory changes, and now that time is finally here.

“Clearly, some of the restrictions are coming down,” said Bartolotta. “We are confident it’s going to be a key component of our business.”

Eastern bought Allied American Insurance Agency in Natick on Dec. 31, 2002. The bank changed the name of its insurance division to Eastern Insurance Group.

“We wanted the power of the brands,” he said. “It helps position us as a full-service financial agency.”

In its first full year of business, Natick-based Eastern Insurance generated $27.6 million in revenue for the bank. The following year, Eastern Insurance brought in $29.8 million. And last year it closed the books with $32.8 million in revenue.

“And this is before some of the regulations [were dropped] that made it more difficult to market,” said Bartolotta.

Stephen Crowe, president and chief executive officer of MountainOne Financial Partners – which owns Hoosac Bank; Williamstown Savings Bank; Coakley, Pierpan, Dolan & Collins Insurance Agency; and True North Financial Services – said he has been balancing banking and insurance since 1999 before several other banks decided to mix the two. He added that MountainOne is the only multi-bank holding company in Massachusetts. Crowe said part of the reason it is appropriate to get into the insurance business is that there are not a lot of opportunities for financial institutions to grow and gain market share. He said expanding MountainOne’s services and products has proven beneficial, and the insurance component has been successful for his institution.

Crowe said the nature of the banking business has evolved, and more institutions are looking at new options since different products seem to be in demand at different times. Specific to MountainOne, he noted, adding new aspects to its traditional banking products and services is necessary for growth and gaining market share due to its location in western Massachusetts and a stagnant population.

Crowe said his institution plans on referring its insurance products to customers as allowed under the new regulations, but he added that the change is not one that he expects to be overly noticeable.

“It will change how we market and cross-sell but not dramatically,” he said.

“It’s been helpful, not dramatic.”

Kiley added, “This [regulatory change] adds to their flexibility. Basically, they are putting state-chartered banks on the same level as federally chartered banks.”